Max Petroleum shares soar on new oil find
(SRI) – Max Petroleum, a Kazakhstan-focused oil junior, said it had struck oil oil at a greater depth, potentially extending its existing Zhana Makat oil field in western Kazakhstan.

Unicredit not expecting further writedowns of ATF Bank
(SRI) -UniCredit does not plan to further write down the value ATF Bank, after it marked down the value of its Kazakh subsidiary by more than half a billion euros in less than a year, the head of its Austrian arm said last week.

Eurasian Bank reports $9.5 million net loss in H1
(SRI) – Eurasian Bank reported last week a net loss of KZT1.4 billion ($9.5 million) in the first half of 2010, compared to a net profit of KZT158.9 million ($1.58 million) in the same period last year.

Kazakhmys H1 output beats forecast on strong demand
(SRI) – Kazakh miner Kazakhmys said its first-half output of finished metal from its own concentrate fell 3.4% but the company beat its guidance and reiterated its full-year target as demand stayed strong.

ONCE UPON A time, all six of Kazakhstan’s biggest banks were Kazakh-owned and accounted for 86 per cent of banking assets. They stayed home-owned, unlike most banks in central Europe, because they borrowed to fund their headlong growth by raising cheap equity in London and/or by borrowing lots of money, very cheaply, from foreign banks – $45 billion, to be precise.

By the time the fairy story ended, in August 2007, two of the ‘big six’ banks, ATF Bank and BankCenterCredit (BCC), had already been sold, at very high multiples at the top of the market, to Italy’s UniCredit and South Korea’s Kookmin Bank respectively. Several others, including Kazkommertsbank (KKB), had also linked up with foreign minority partners.

They were the lucky ones. Once Kazakh banks became victims of the US sub-prime crisis, deep- pocketed foreign shareholders suddenly became highly desirable and are now being actively sought by -»Alliance Bank, and above all, BTA Bank.

BTA was effectively nationalised in mid-February when the government, in the shape of the Samruk/ Kazyna holding company, shovelled nearly $5 billion into the banking system and took a controlling 75.1 per cent stake in BTA in return for $1.7 billion of fresh equity.

In a conference call with BTAs investors and creditors on 28 April, Anvar Saidenov, the former Central Bank president who now runs BTA, explained that Samruk had acquired the controlling stake “via a mandatory additional share issue… as a result of BTA being in breach of liquidity and capital requirement.”BTAs ousted former president, Mukhtar Ablyazov, didn’t see it that way. He complained that the bank had been the victim of an egregious act of corporate raiding, before fleeing the country ahead of the bailiffs. He is now required to respond to accusations of money-laundering and illegally transferring funds to front companies. From a safe distance, Ablyazov has started legal proceedings in an attempt to get billions of dollars in compensation for the bank’s former owners, although he is not formally a shareholder in the bank himself, according to Central Bank chief, Grigori Marchenko.

Ablyazov, long viewed with suspicion by the establishment, is a boyish-looking, hyper-active entrepreneur, and former energy minister. He helped finance and lead the opposition Democratic Choice movement earlier in the decade before being jailed for allegedly misappropriating funds. After a year in jail he was given a presidential pardon and released, promising to give up politics and throw his energies into business.

By the time the global financial crisis broke two years ago, Ablyazov and chairman Roman Solodchenko had built BTA into the country’s biggest bank. In the process they borrowed more than $15 billion – mostly in foreign currency – and re-lent much of the money into property and other projects in Kazakhstan and throughout the former Soviet Union.

While commodity prices remained high, for the first year of the crisis, BTA, along with other heavily indebted banks, was able to repay maturing debt and interest by recalling maturing loans and rolling over loans at higher rates. But when commodity prices nose-dived in the second half of 2008, in the global meltdown that followed the collapse of Lehman Brothers, corporate balance sheets contracted, cash evaporated and depositors looked for a safer home. Tenge devaluation in early February added further to the foreign debt burden of all banks, but especially BTA as the most indebted.

When Samruk/Kazyna took possession of their new asset, Anvar Saidenov, the former Central Bank president, moved in to take charge and a small army of finance police moved in to the bank to go through the books and computer files with a fine toothcomb.

The cultural change is dramatic – from free- wheeling, growth-orientated, entrepreneurial whiz-bang the bank is now just ticking over in the safe hands of a former central banker and financial bureaucrats. Little wonder, under the circumstances, that the main priorities of the new management are to restructure the bank’s debt as soon as possible and find a new owner to rebuild the h bank. UBS and Goldman Sachs have been called in as financial advisers.

Their task became more difficult after the new management was forced to default on BTAs foreign loans in April. Morgan Stanley and another international banks called in loans totalling $550 million, triggering what would have been an avalanche of early repayment demands, which the state made quite clear it was not prepared to deplete its reserves to satisfy.

The US investment bank justified the move as a response to changes in ownership covenants following Samruk’s defenestration of the old regime and downgrades by the international rating agencies. Standard and Poors moved BTA debt to “default” status and Fitch downgraded BTAs long-term issuer default rating to “restricted default” as the new state owners are continuing to pay interest on outstanding debt and repaying smaller loans, below $10 million, as they come due.

BTA is not alone in its default. In May, Alliance Bank requested a three-month moratorium on debt repayments after writing down $1.1 billion of assets linked to US Treasuries. BTA, Halyk, KKB and other banks, meanwhile, have raised new bond issues domestically where possible to shore up their capital base and allow them to buy up some of their distressed bonds at a discount.

With BTA formerly scheduled to pay back $3 billion this year out of $9 billion of foreign loans still outstanding, the new owners have taken a tougher line with creditors, pointing out that those granting foreign loans and credits to Kazakh and other emerging market banks in the boom years were all professionals who should have been aware of the risks.

At the annual Fitch rating conference in April, Elena Bakhmutova, chairperson of the Kazakh Agency for Regulation and Supervision of Financial Markets and Financial Organisations (KFSE), said: “We will use all feasible suggestions – redemption of discounts, substitution of new debt securities and so on.” But, she underlined “under no circumstances will state guarantees be used.” It is on this basis that BTAs new owners are negotiating debt-restructuring terms h with creditors to clear the ground for substantive negotiations with potential new owners.

The leading suitor is Russia’s giant Sberbank, the former Soviet savings bank. Ownership of BTA would give Moscow a powerful new role in the Kazakh economy. Russia, however, is also suffering from the global economic crisis and Sberbank is having its own problems with mounting bad debts. However, the Russian state is preparing a substantial recapitalisation of Sberbank, both to strengthen it domestically and provide it with the financial firepower to take over BTA if terms can be agreed. Whether any other suitors emerge depends largely on the evolution of the banking crisis elsewhere in the world.

Looking ahead, the chance to buy what was Kazakhstan’s biggest bank, with subsidiaries throughout Central Asia, is probably an unrepeatable opportunity. But deep pockets and strong nerves are called for, and both are currently in short supply.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 82-83.

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Kazakhstan Chamber of Commerce in USA is located in New York. KazCham is an independent chamber associated with state agencies and businesses in Kazakhstan with the aim to provide members with current information on the political and investment climate, assist them in establishing government and business contacts, conduct searches of buyers and partners, organize forums and seminars, PR campaigns. Contact us at info@kazcham.com or follow on twitter.com @kazcham.